Your Finances: Gift tax law provides an opportunity

Sunday

May 1, 2011 at 2:00 AM

The Tax Act of 2010 had many new provisions. One unified the estate, gift and generation-skipping transfer tax (GST), increased the exemption to $5 million for 2011 and '12 and decreased the tax rate to 35 percent.

Laura Medigovich

The Tax Act of 2010 had many new provisions. One unified the estate, gift and generation-skipping transfer tax (GST), increased the exemption to $5 million for 2011 and '12 and decreased the tax rate to 35 percent.

In 2013, barring any further changes, the estate, gift and GST tax reverts back to $1 million, with a 55 percent tax rate.

For taxpayers facing estate tax liabilities, this has created a unique two-year window of opportunity to take advantage of the current gift tax law by transferring assets to the next generation. An individual can gift up to $5 million, which means that couples can gift up to $10 million.

The current gift tax environment, combined with low interest rates and depreciated real estate, creates a rare configuration from which taxpayers can benefit. By accelerating gifting now, taxpayers can reduce their taxable estates and transfer wealth to the next generation in a tax-efficient manner.

There are a variety of different strategies that can be adapted depending on your situation. One method is outright gifting. This is simply giving assets away during your lifetime directly to beneficiaries. The assets can be cash, investments, percentage ownership in businesses, or collectibles, to a name a few. This method can be beneficial for assets that you expect to substantially appreciate in value before you die, as you can transfer them out of your estate before they appreciate. This can be especially useful for real estate that may have depreciated in the past couple of years, or for investment portfolios that lost value in the recession.

This is a unique narrow window of opportunity to shift assets, including businesses, to the next generation. If you haven't done so already, you might consider having a conversation with your team of advisers to discuss the best strategy for your circumstances.

Before starting any major gifting, it is always a good idea to discuss your intentions and the advantages and disadvantages with your attorney and tax adviser.

Please keep in mind this is only one of many strategies. I will be discussing other methods of leveraging your gifting dollars in future columns.

Laura Medigovich is a certified financial planner and vice president for M&T Bank's Hudson Valley region. The views expressed by the author are her own and are not endorsed by M&T Bank, M&T Securities or their affiliates. Her column appears Sundays.